Back to the Basics: Staying out of ChexSystems

You check your credit report once a year.  Well done, you have kept a clean credit report.  There is something that will never appear on a credit report, but can be even more damaging to your ability to establish good banking relationships in the future.  ChexSystems!

Most people have never even heard of ChexSystems.  Many people who have been reported to ChexSystems do not even know about it until they walk into a bank and try to open an account.  So, what is it and how can it affect you?

When I worked in banking there was nothing worse than seeing a young person, or a young couple, or worst of all, young parents, walking in to open a checking or savings account, only to have to deny them because of ChexSystems.  Most of them didn't have any idea what ChexSystems is or why they were reported to it.

ChexSystems is a consumer reporting network among banks, used much like credit reporting agencies like Transunion, Equifax or Experian.  However, there is no ChexSystem's "score" or rating.  It is simply a yea or nay system.  If you handle your bank accounts properly and responsibly, including ensuring proper closing of dormant accounts, covering bank fees and not overdrawing your accounts, you will never need to know about ChexSystems.  However, if you are remiss even just once, you will feel the full wrath of its power!

An individual who is reported to ChexSystems will likely be denied opening a checking, savings, or even a CD account with virtually every bank in the country.  In this sense, ChexSystems is vastly more punitive than credit reporting agencies.  In the case of credit reports, a few late payments, even a foreclosure or bankruptcy will not prevent you from obtaining a credit card or car loan.  Granted, you will be forced to use a "sub-prime" lender and pay a higher interest rate.  But the option exists.  Once you are reported to ChexSystems, banks consider you a risk for loss or fraud.  They generally do not have a "sub-prime" checking account option.  They simply say, "I'm sorry, we can't open an account for you.  Have you heard of ChexSystems?  Well, you're on it."

But if you can't open a checking account, what are you to do?  Unfortunately, there is a reason check cashing places are prevalent in lower income neighborhoods.  Without the possibility of any banking relationships, many are relegated to a life of cash only.  How long does this last?  Five long years.

Okay, so how can you get reported to ChexSystems?  Generally, it is due to excessive overdrafts, bounced checks and unpaid overdrawn accounts.  "Well, I don't have to worry about that," you are thinking, "I never bounce checks or overdraw my account."

Well, it's not so simple.  There are two main reasons that otherwise responsible individuals will find themselves on ChexSystems. 

First, they do not account for holds that may be placed on their deposits.  Back when all deposits were made inside the bank, the teller would generally inform the customer if a hold was going to be placed on their deposit.  Generally, holds are placed for larger deposits, especially larger personal or out of state checks.  Sometimes holds can be as long as 12 business days for part of the funds.  Say you make a deposit to cover checks that you just wrote to your contractor or Home Depot.  If you walked into the branch to make your deposit, you would have been informed of the hold by the teller, and could have requested manager override to reduce or eliminate the hold.  However, you made the deposit at the ATM, as you always do.  Sorry, you have now bounced a bunch of checks.

Second, customers do not properly close their accounts.  Some people think that the way to close an account is to write themselves a check for the remaining balance.  Seriously, they think that.  Well, generally what happens is bank fees begin to accumulate, and eventually the bank considers you a deadbeat and welcomes you to the world of ChexSystems.  This is especially possible during a move.  Sometimes, forwarding addresses are not given, because the customer believes that the account is closed.  A forgotten outstanding check comes in, fees accumulate, and your mail keeps getting returned.  Done deal, no bank account for you for five years.

The lesson:

Manage your accounts responsibly.  Make sure you are aware of not just your "total balance" but your "available balance."  Make sure that you receive written confirmation that an account has been properly closed.  Also, provide forwarding addresses to all institutions when you move, even the ones with whom you no longer do business.

Comments

[S/100/30]

Thanks for the info. I ended things really badly with my college bank -- my last transaction was a $300 bounced check which they only recovered via a collection agency! -- but at least I didn't end up blackballed by ChexSystem.

[makingourway]

thanks, LA,
is there a way to request your credit record with ChexSystem?
regards,
makingourway

[Jason]

Etrade denied me earlier this year because of chexsystem. However, when I got my report(like a credit report, you can get one free if your denied) there was nothing negative on it. Many of my accounts, but not all, were listed. I think I was denied because I opened a bunch of accounts for bonuses in a short period of time.

[bluntmoney]

I wrote about this a while back too, and you can get your report by going to https://www.consumerdebit.com/ (It's a very simple report, but they do send it to you.)

[lamoneyguy]

Thanks for responding bluntmoney.

Jason, that's true. I forgot about that. If you opened an account within 30 days (or maybe it was 90 days), it notified the bank you were trying to open another account at. It is always the bank's discretion to open the account anyway, and some are stricter than others. But having numerous open accounts does not affect you in any way as far as chexsystems is concerned. Only opening a bunch in a short period as you mentioned.

[Mi6sa]

Hey guys i got some free information on www.owladvice.com and it worked! I just got my letter from both telecheck and chexsystems! If anyone out there needs to get out of their data base go to that site! I had nothing to loose so i tried the free letter they offer and it worked!!!!!!!!

[Credit Guy]

There are different options to overcoming ChexSystems.

If you guys need free assistance with ChexSystems, then visit our site at www.creditservicer.com.

[miss me]

[[Hey guys i got some free information on www.owladvice.com...]]

what site is this? using that web-address takes me to google search-results...back here.

[gigi]

w.o.w i just learn a very important lesson today!!!!!!!!